Morningstar to Rate Target-Date Fund Families

By

WSJ Staff

May 28, 2009 4:32 pm ET

contracosta.edu

Journal reporter Eleanor Laise writes:

Target-date funds have come under intense scrutiny in recent months as many of them suffered steep losses in the market downturn. Now these popular 401(k) retirement-plan investments are getting new ratings from fund-tracker Morningstar.

Target-date funds typically hold stocks, bonds and other investments and shift to a more conservative mix as investors approach retirement. Instead of investing directly in stocks and bonds, the funds often hold other mutual funds.

While Morningstar currently assigns its popular star ratings — which are based on risk-adjusted returns — to individual target-date funds, the new rating system will apply to a fund company’s entire target-date lineup. The firm plans to issue ratings for 20 target-date fund families in the third quarter of this year.

The fund families can earn a maximum of 20 points in each of five categories: people, meaning the fund managers and board; parent company, which will examine the fund company’s corporate culture and any regulatory issues; performance; portfolio holdings; and price. Morningstar will also offer a four-page research report on each target-date lineup….